The Post Office: External Finance Limit (Hansard, 18 December 1995)

§ The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)
My Lords, the £534 million to which the noble Lord refers is based on figures which are used for forward planning purposes and which are renewed each year in the public expenditure survey. The cash targets which the Post Office has now been set reflect an appropriate balance between the needs of the business and its ability to contribute to public finances.

§ Lord Haskel
My Lords, is the Minister aware that on 11th May 1995 the President of the Board of Trade said in another place: I am prepared to agree that in future we shall aim to set the EFL at about half the Post Office's forecast post-tax profit. I hope to make progress in that direction this autumn"—[Official Report, Commons, 11/5/95; col. 885.] Perhaps I should explain what the EFL is to those noble Lords who, like me, do not know what it means. It means external finance limit, which is Whitehall jargon for how much money the Post Office pays over. Does the Minister agree that the Post Office was justified in accepting this statement for budgeting and planning purposes; otherwise, why would the Minister have made that statement? Can the Minister explain why, between May and November 1995, the Government have raised their demand for cash from the Post Office from about half to virtually all of its post-tax profit?

§ Lord Fraser of Carmyllie
My Lords, of course I am aware of the statement made by the previous President of the Board of Trade last May. The position is quite simply that, following on what was undoubtedly a difficult public expenditure round, no public body can be immune from the pressures on public finances. We had to balance the needs of the organisation with those of the public purse. The Post Office did extremely well last year with record profits of about£472 million. We take the view that it will be able to accommodate this additional call on what it has secured in profit.

§ Lord Campbell of Alloway
My Lords, can my noble and learned friend say whether or not the rumour is correct that it is the intention of the Post Office to raise the cost of postage stamps?

§ Lord Fraser of Carmyllie
My Lords, as I understand it, having had imposed on it a strictly negative external finance limit, the Post Office has indicated that it will 1400 want to look at a number of ways in which it can raise the money that it has to pay over. That will not be secured entirely by an increase in prices. It will be open to the Post Office to see what efficiencies it can achieve and what adjustments it can make to capital spending. That is certainly the public position which the Post Office has adopted.

§ Lord Shepherd
My Lords, putting it crudely, is it not right that the Post Office is being required to increase the cost of postage stamps not because of its inefficiency, but merely in order to balance whatever the Treasury requires in order to permit the Chancellor to make tax reductions at some later stage?

§ Lord Fraser of Carmyllie
My Lords., as I indicated at the outset, we need to balance the needs of the organisation with those of the public purse. It was a difficult financial round and we do not shrink from that: there has never been any attempt to do so. The decision has not yet been taken to raise the cost of stamps, but it is necessary to reflect that the current freeze on stamp prices, which expires at the very earliest in March next year, will have been the longest period of stability in stamp prices since the late 1960s. Given the level of profit that the Post Office secured last year, it seems to the Government that the Post Office is well enough positioned to ensure that the high level of efficiency it has achieved can be secured in the future.

§ Lord Mackie of Benshie
My Lords, if it seems to the Government that the Post Office is well enough provided with money for investment in the business, can the Minister give the Post Office's view? Does it agree with the Government's view?

§ Lord Fraser of Carmyllie
My Lords, I believe that the Post Office's attitude is fairly well known. Of course it would rather not pay over any money. It would make life very much easier for the Post Office if it had the totality of its profits to expend. However, it is reasonable enough, as others do, to contribute to the public purse. The Post Office has indicated that there are a number of ways in which it will achieve that figure. Some of it may be achieved by efficiency savings and there may be an adjustment a its capital programmes.

Lord Bruce of Donington
My Lords, is it not the case that what the Government are prevented from privatising they then pillage?

§ Lord Fraser of Carmyllie
No, my Lords, the Post Office has been required to pay over an additional sum next year and I believe that to be entirely appropriate. If it is being suggested that the Post Office should not have been required to do that and that other arrangements should have been made to secure the needs of the public purse, I should like to hear what they are. I understand that in another place the Opposition did not dispute the idea that we should take 1p off income tax.

§ Baroness Macleod of Borve
My Lords, is my noble and learned friend aware that there is grave disquiet throughout the country at the resiting of post offices? For instance, in two towns near me, one post office is 1401 now situated at the back of a haberdasher's and the other at the back of a grocer's shop, making it very difficult for elderly people, and pensioners in particular, to go to the post office.

§ Lord Fraser of Carmyllie
My Lords, I am, of course, aware that there have been a number of relocations of post offices throughout the country. However, I cannot see that any of those relocations, or the desirability or otherwise of them, is affected by the decision that formed part of the Budget. Although the noble Baroness indicates that she considers that in a number of cases such relocations have disadvantaged old age pensioners, there are other circumstances and other locations in which such changes have been widely welcomed as a significant improvement for such people.

§ Baroness Seear
My Lords, bearing in mind that we on these Benches opposed the cut in income tax, may I remind the Minister that there are other ways of raising public finances?

§ Lord Fraser of Carmyllie
My Lords, I do not think that I mentioned the party of the noble Baroness.

§ Lord Skelmersdale
My Lords, is my noble and learned friend as confused as I am as to why the Opposition complain about what is obviously a windfall tax?

§ Lord Fraser of Carmyllie
My Lords, my noble friend makes the point more elegantly than I could.

§ Lord Peston
My Lords, I did not realise that it was a windfall tax. Do we assume, therefore, that it will not be imposed again next year and that the Post Office will be allowed to keep future surpluses? If you believe that, you will believe anything. I also did not realise that the Government had admitted that this was part of the package which led to the cut of 1p in income tax. I thought that the Government had taken the view that these matters had nothing to do with each other, so I was interested to hear what the Minister said.
However, my main question is this: if the Post Office is such a marvellous milch cow—a £1 billion contribution to the Exchequer is quite a large sum of money—may I take it that we can forget about the desire of the previous President of the Board of Trade to privatise the Post Office because it is obviously much better to keep it in the public sector, to pull out those monopoly profits and to use them for tax cuts? Is that now the Government's policy?

§ Lord Fraser of Carmyllie
My Lords, the noble Lord asked first whether this arrangement applies only to next year. The answer is no. I think that the noble Lord will be aware from the statement that has been made that the targets are set not for one year, but always for three years. Those targets are £298 million, £317 million and £310 million over the next three years. I would not adopt the language which the noble Lord is prepared to use in describing the Post Office as a "milch cow". It has made significant profits and 1402 is an extremely efficient organisation. On that basis, it is only reasonable that it should make a significant contribution to the totality of public expenditure.